A view of downtown Detroit from the Detroit River early in the morning the day after the city filed for bankruptcy, July 19. STEPHEN MCGEE, NYT

Detroit and Orange County: Two communities so very far apart on the economic spectrum – yet linked forever as filers of giant municipal bankruptcies.

Almost two decades ago, in December 1994, Orange County filed for bankruptcy protection. Political leaders of this economically booming county sought court protection to buy time to figure out how to settle debts and legal complications incurred as a massive investment portfolio – used to manage cash for the county as well as local school and government agencies – imploded under $1.7 billion in losses.

This month, the economically ravaged city of Detroit sought bankruptcy protection after a state-appointed overseer saw no hope but court action to keep the city from literally running out of cash.

Orange County has long been a growth story – 3.1 million residents today compared with 2.4 million at bankruptcy. Onetime manufacturing hub Detroit has suffered with the shrinking U.S. auto trade. It had roughly 1 million residents when Orange County went bust. Its population is 700,000 today.

So, what themes could be similar within the financial ruin tied to a seaside paradise versus a fiscal fiasco in a Rust Belt relic?

More than you might realize.

Let's start with the scope of the messes. It's widely reported that Detroit is the biggest municipal bankruptcy ever, with debts running as high as $19 billion. Well, I disagree. Orange County's bankruptcy involved a fight over the $20 billion, debt-laden bond portfolio concocted by the county's rogue treasurer and tax collector Bob Citron.

Numerology debates aside, both of these financial quagmires are certainly gigantic in dollar scale – and the surprise factor of Orange County's debacle, and its deep ties to Wall Street traders, raised global alarms for a short time.

Note that before Orange County collapsed into bankruptcy, the county held a near pristine "Double A" credit rating. Detroit – longtime holder of "junk" credit status – is more of a "What took so long?" kind of financial swamp. Painful, but not shocking.

That's because Detroit ended up in bankruptcy after city leaders for decades failed to cut spending to keep up with long-running trends: horrible economics and a shrinking tax base due to vast out-migration. That governance shortcoming is a hard-to-fathom mix of ineptness and inertia.

Orange County, on the other hand, had to-die-for demographics – and a business climate in relatively fine shape when its bankruptcy occurred. But local government leaders had blissfully ignored Citron's massive bond-trading risks.

Why?

The outsize gains produced by high-risk bond dealings allowed local government leaders the luxury of avoiding budget crunches. (It didn't help matters that Citron cooked the books to hide some of his trading insanity, fraudulent actions that earned him prison time.)

The eventual bond-trading losses and bankruptcy costs certainly forced the county and other local government agencies to rethink spending priorities, though many government critics will say that budget-pruning mentality was way too short-lived.

Will any similar governmental frugality overtake Detroit? History suggests that, much like in Orange County, deep budget realignments will be a challenge.

And a bankruptcy's impact on a region has its own surprises.

Some so-called experts initially labeled Orange County's bankruptcy a serious blow to its business climate. Sure, the financial mess was embarrassing, and it did raise short-run fears about the quality of civic services. Some county projects – roads and parks, to name a couple – have suffered to this day.

But the county's government finances pale to its broad economic oomph, even when a fiscal firestorm erupts. In the end, Orange County's bankruptcy was barely a hurdle to what became a roaring hot 1990s for the county's overall economy.

Today, it is hard to imagine a similar happy outcome for Detroit. Yet the city is at such a low point, emotionally and economically, that perhaps the shock of the filing – and some discipline that may come from any recovery plan – will do long-term good. Remember, bankruptcy typically is a cure, not a symptom.

Both of these municipal bankruptcies test legal precedent. Detroit, for example, will have to learn what federal bankruptcy code can do to cut pension obligations of its retired workers against the backdrop of a Michigan state constitution that all but guarantees those payouts. Orange County lawmakers learned that bankruptcy law was powerless to stop Wall Street brokerages from seizing its collateral – bonds backing highly complex derivatives used to inflate the county's ill-fated investment pool.

Orange County's bankruptcy jolted Wall Street traders who did business with the county. When it was all over, nary an investor – direct to the pool or indirectly through Orange County debts – suffered true losses.

In Detroit, the current bankruptcy plan calls for doling out massive losses to the city's creditors and bondholders – not to mention somehow cutting pension benefits of its retired workers. The outcome will be fascinating to see because Wall Street rarely loses, and city workers are promised the state's protection.

If there was financial pain for outsiders in Orange County's bankruptcy, it came through civil litigation. Several Wall Street brokerages settled complaints that they had improperly profited by putting Orange County's investment pool in a high-risk position. Broker Merrill Lynch, Citron's top adviser, paid the largest amount – $400 million – to the county to settle civil charges.

Sadly, whenever there's a chance that Wall Street will lose money, you can bet there will be talk of what seemingly sounds like trader reprisals.

Numerous analysts were saying two decades ago that Orange County's bankruptcy would hurt the county's long-range ability to borrow from public markets – pain that perhaps would extend to municipalities that participated in the ill-fated county investment pool.

Since Detroit filed for bankruptcy help, analysts have been quoted raising questions about future access to capital markets for Detroit, many Michigan municipalities or even government entities nationwide. Could this be Muni-geddon?

Orange County's fix-it plan, filled with new borrowings from Wall Street, proved that Wall Street can only exact a price from defaulters. That is, perhaps gaining slightly more than market interest rates on future deals. And that surcharge won't extend far past the borrower who defaulted on debts.

Be skeptical of current buzz claiming that Detroit's bankruptcy will be a game-changer for its own borrowing ability or for the broad world of municipal finance. I'd bet that any Detroit recovery plan will include several Wall Street-engineered deals.

Why would Wall Street – investors et al. – do business with a bankrupt entity? Well, guess who will profit from that work? Remember, the big winners in any bankruptcy are the consultants who do the fix-it work.

Despite all the chatter about how poorly governments manage their finances, municipal bonds remain a safe bet. Did you know that despite headlines about a wave of government bankruptcies – San Bernardino, Stockton or Harrisburg, Pa., to name a few – corporate bond defaults are far more common than skipped payments involving municipality-backed issues?

So the top reason that financial debacles such as Orange County or Detroit are alike is this: Thankfully, they're rarities.

O.C. vs. Detroit by the numbers

Separated by vast demographic differences – yet linked by municipal bankruptcies nearly two decades apart. Here’s a look at some key recent Census data comparing the populations of Orange County (bankruptcy, December 1994) and the city of Detroit (bankruptcy, July 2013).

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